"It is too early to tell what the projections are for the next two years," said state Sen. Robert Duncan, R-Lubbock. "All indications are there will a substantial shortfall in revenue versus costs primarily from increased health care costs."

Duncan, a member of the Senate Finance Committee and chairman of the Subcommittee on Medical Costs Moni toring, said the increase for the 2004-05 bud get is from case-load growth, growth in utilization, such as tests, prescriptions and procedures, and rising prescription drug costs.

With more people in the state, more people are eligible and enrolling for Medicaid and the Children's Health Insurance Program, he said.

"If you want to look at our deficit, the one thing driving it is health-care costs," Duncan said. "We have a heavy, heavy Medicare population."

He said the cooling Texas economy has taken some serious hits with the fall of Enron and the slumping stock market.

He said the last official number was the estimated $5 billion shortfall announced by the State Comptroller's office.

Republican state Sen. Chris Harrison, vice chairman of the Senate Finance Committee, said the shortfall could reach $12 billion.

Harrison's estimate is the latest in a series of projections regarding the shortfall legislators will have to address when they meet next year. Texas currently is operating under a two-year, $114 billion budget.

The shortfall represents how much more money is needed to maintain services and programs at their current levels.

"We are going to have to make tough decisions on priorities," Duncan said.

Increased teacher health care and the Teacher Retire ment System will make up almost $3 billion in the budget.

"I see little willingness to cut in education," Duncan said. "I hope to continue to grow education, K through 12 and higher education. We cannot afford to get behind. ... Education is how we provide for our economy for the future."

He said some programs, such as those in health care and education, cannot afford to be cut more.

"These are not just programs we can go in and scrub on," Duncan said. "We've scrubbed."

If the state cuts health-care spending, he said, Texas will lose matching federal dollars and the burden will be shifted to the local level.

Duncan said a massive overhaul of the tax system, which then-Gov. George W. Bush tried in 1997, would help the situation.

"We are in a crisis," he said. "That doesn't mean we need to panic. We know the current system of taxation is inequit able. We need to take tough looks at the tax system.

"We need revenue generation to track growth in the state and demand in state services. We need to be strict on approving new programs or continuing to fund programs that don't serve a purpose."

Duncan said he believes the $5 billion estimate is probably accurate; however, state Rep. Delwin Jones, R-Lubbock, said he believes the estimates are excessive.

"Comptrollers always predict the worst early and, as we get closer to the end, it is never quite that bad," Jones said.

Jones and Duncan both said they are against increasing taxes to raise revenue to handle the shortfall.

Jones said he is in favor of using the state's $1 billion "rainy-day fund," which some officials, including Comp troller Carole Keeton Ryland er, are against.

"That is what we put it aside for  a bad time when we need it," Jones said. "It is a bad time. Do we wait and see if we have a worse time some day?"

Jones said he advocates trimming the budget to deal with the potential shortfall.

"That is the only approach I would recommend at this point," he said. "We'll have to see what people have spent this time, what they claim they need this next time and use plain ol' common sense."

Texas Tech Chan cellor David Smith said university officials are con cerned about the budget shortfall, but must communicate their needs to the Legislature.

He said communicating Tech's needs to the state Legislature will be a major focus for at least the next nine months  beginning with presentations next week to the governor's office.

"Even with the tight budget, we need to let the Legislature know what we're going to need to be successful and to meet the state's need for growth  to grow students and faculty," Smith said.

He said Tech will request additional funding this session for four main items including: growth in the Hill Country; expansion of Tech's research and increased role concerning water, its safety and its conservation; a four-year medical school in El Paso; and the university's aging initiative.

He said Tech officials are realistic and realize the session could end with the university not receiving additional funding.

Tech, which had a record enrollment when school started last month, will need more resources, including more faculty, to handle its growing student population, Smith said.

If the university does not receive more funding, the goal of reaching an enrollment of 30,000 in five years may not happen and the Health Sciences Center might have to cut back on charity care.